23 September 2011
Good morning Ladies and Gentlemen.
Thank you for coming to this budget briefing. Yesterday we saw more huge falls on international stock markets. The headlines continued overnight with more falls in the far east and Asia. Last night the President of the World Bank said the global economy was “in a danger zone”.
Europe continues with its on-going sovereign debt crisis which threatens the integrity of the Euro and Monetary Union. And of course it’s not just our continent having difficulties, the problems stretch across the developed world, across almost every country in every corner of the globe. We in Jersey have not been immune. We were bound to be affected by the global recession. We obviously have not had the deficit crises of, Ireland, Greece or the UK. But what has made the things difficult in Jersey, was to deal with the absolutely necessary need to change our tax structure.This was essential for us to remain competitive.
Perhaps this has not been explained, but in simple terms, there was no responsible alternative. Jersey households have faced a double squeeze in normalising our tax structure and coping with the effects of the global crisis. Being a Treasury Minister in such times is challenging. The need to increase taxes and cut spending whilst supporting economies has been a task that not every country – large and small - has met.
However, one lesson has become clear. Treasury Ministers that did not cut their spending and deal with deficits have now made it very difficult for their countries to recover from the downturn. I do not underestimate the effect that the economic climate has created for the community over the last three years.I understand Islanders have had to cope with squeezed incomes, diminishing savings, job insecurity and higher living expenses.This made last year’s budget extremely challenging. We needed to secure the Island’s economic stability to ensure we could balance our books.
This year’s Budget is a different story. As a result of the decisions we have made, we are now back on track with more secure and stable finances.I am glad to say that today, while we must still be responsible, I have some much more positive announcements to make about how best to support Islanders.
This Budget is turning a new page and now we have tackled our problems it is designed to start the process of unifying the Island. We do not need to raise more taxes. In fact, we can give something back to those who need it.
Over the next few minutes I will:
Jersey’s financial position is strong
We hear some people criticise our wonderful Island and suggest that our Finances may not even be resilient. In a turbulent, uncertain world, it is worth reflecting just how strong a position we are in. Jersey has a creditable and strong Balance Sheet. We have a safety net of nearly one year’s spending set aside in our Strategic Reserve.We have fixed assets worth more than £2.7 billion. Of which, the States’ property, in its current use, is valued at more than £1.7 billion - more if we consider the development potential of some of it to create even more homes.
The Island’s infrastructure such as the Airport, Harbour, sewers and roads are valued at a further £1 billion and with no public debt. The States also wholly or partly owns utilities with a book value of £254 million; more if they were ever sold as other places have done. Most countries meet pension costs from current revenues. Jersey, in contrast, has a financial buffer to support future costs of an ageing population.
The States also has Pension Funds for all public sector workers that is fully invested to generate returns and reduce the cost to the taxpayer. This contrasts with other countries that are meeting all of the pension costs of former employees from current resources, placing an ever-increasing strain on their finances.
The States’ Balance Sheet is probably one of the strongest in the world outside of the oil producing nations. It has taken a generation to get to this position and it has not happened by accident. Having protected this legacy over the last three years we can now use it to withstand further global turbulence, stimulate the economy and begin to make life easier for Islanders.
The approval of the business plan 2012
We are now managing our spending more carefully. The States is following a fiscal strategy that is sustainable and will benefit the Island for the long term.Two years ago, I needed to set out revised estimates for public finances.I forecast that with no action by 2013 we would have a deficit of up to £100 million. We did not take the easy path and avoid dealing with this deficit through borrowing. We resolved to tackle it with a three-part plan: reducing spending, boosting economic growth and raising some tax.
Two years on, I am pleased to report that we have delivered on both the necessary changes to our tax regime and on reducing spending. Furthermore, we have stimulated the economy with the targeted use of Fiscal Stimulus cash.It is encouraging that, through Advance To Work, 200 young people have found employment. A further 21 young people are now in States’ apprenticeships and 70 long term unemployed are back to work through the “Advance Plus” programme.
Fiscal stimulus money has kept Jersey going and the Housing Ministers have left a wonderful lasting legacy of new and improved warm, well designed homes and the TTS Minister improved infrastructure improvements.
More than that, Jersey Hospice, Durrell and other local third sector organisations have benefited from new investment to assist them in their outstanding work.The Council of Ministers savings programme is working. Last week’s States’ approval of the 2012 Business Plan confirms the savings target for the second year of the three-part plan. Unlike virtually anywhere else in the world, we will have funded our deficit from cash and we still have a strong base.
I would like to say a very sincere and heartfelt thank you to the Chief Minister and Ministerial colleagues for working as a team and supporting the difficult decisions that we have had to make. And a sincere thank-you to those States members who have consistently supported these necessary decisions designed, not for the short term but the long term good of the Island. Jersey will achieve balanced budgets by 2013
The Stabilisation Fund will comfortably cover the deficit of £19 million in 2012 and with a return to balanced budgets in 2013, we will see the Consolidated Fund increase to £24 million by 2014.
In 2012 I am pleased to say that around £10 million will also remain in the Stabilisation Fund. From this incredibly strong base the new Council can prepare to meet the next future challenges in health and housing services in the confident knowledge that these can and will be solved.
Jersey’s position stands in positive contrast to that of other jurisdictions and for that we should all be proud. Of course, the global prospects for economic growth continue to be of great concern.
The economic recovery for developed countries is almost at a halt
The OECD reports that economic recovery in developed countries appears to have come close to a halt in the major industrialised economies. Falling household and business confidence are affecting both world trade and employment.
Whilst growth remains strong in most emerging countries, economic growth in the G7 economies will remain at an annualised rate of less than 1% in the second half of 2011.
The debate over fiscal policy in the United States, the sovereign debt crisis in some Euro countries and the fact that governments have fewer options to boost growth are driving both business and consumer confidence downwards. The impact of banks reducing their own debt, due to the extent of regulatory changes, may also have been underestimated.
The OECD reports that earlier improvements in the labour markets of their Member States are now fading, and there are greater risks that high unemployment could become entrenched. On the upside, a number of OECD countries are taking serious fiscal and structural reform measures.
Central banks are keeping interest rates at present levels, and barring signs of recovery, consider lowering rates when there is scope.
The economic outlook for jersey is improving, global uncertainity remains a risk
Despite this global uncertainty, there are positive signs in the Jersey economy. In the last 18 months I have led trade delegations to Shanghai, Mumbai and Abu Dhabi. These are the growing capitals of the world, where we have opened offices and are now winning new business and securing future growth.
In the summer, responses from finance companies to the Business Tendency Survey showed higher business activity and an improvement in profitability. The States also saw an improvement in income forecasts between June and July.While it is still too early to gauge the impact of the recent financial market turmoil on local economic prospects, one thing is clear. If the weakening in the large economies seen over the summer continues, future rises in interest rates will be delayed. Low interest rates will have an affect on our banks’ profitability.
However, this has been planned for in our Budget strategy. This is obviously not good news for savers. Low interests rates will continue to be a bonus for mortgage payers.The Statistics Unit report that in the first 6 months retail sales volumes were around 5% higher than a year ago. Retail sales are higher across the board and footfall in shops has increased higher than last year.
Whilst unemployment has been a problem for Jersey, the number of people actually in work stands at close to the highest number Jersey has ever had. However, we will continue to support employment and training initiatives for as long as they are needed.
Advice of the fiscal policy panel
I am always grateful for the wise and considered advice of the Fiscal Policy Panel. Their July report said that “Jersey should continue to plan on the basis of a fragile and drawn-out global recovery” and that “the pace and nature of fiscal consolidation in the near-term remains broadly appropriate given the current economic outlook”. This is an encouraging endorsement of our plans.
The FPP will publish an update to their annual report in October which will give the latest independent assessment of the local and global economic outlook in more detail in advance of the 2012 Budget debate. This will take into account any further risks to these forecasts from the recent financial market turbulence.
It is encouraging that inflation in Jersey remains lower than in the UK.96. The latest forecasts from the Economics Unit suggest that underlying inflation will be lower for the coming year, at 3% to 3.5%. It is important that higher inflation is not factored into wage and price decisions.98. This would damage the Island’s competitiveness, the local economy and job prospects.
The States has underlined its own commitment to avoiding a wage-price spiral. While household finances have been squeezed, we can make the pound in people’s pockets go further by ensuring that we have competitive local markets.
Our task now is to continue to ensure that we can improve economic performance and secure more and better paid jobs for Islanders.
The draft Economic Growth Strategy published by the Economic Development Minister is focusing the debate on how we can get the economy moving. We must improve the competitive position of all Island businesses in all sectors of the economy. Capital spending is one constructive way to help.
In Treasury we are not only going to make sure that we actually spend the £37½ million of new capital in 2012. A whole range of Health, Housing and Infrastructure projects will not only make life better but help keep the economy going. We are going to also ensure that we use wisely unspent capital balances from earlier years.This will deliver value for money and provide more economic stimulus.And it is not just the States’ capital programme that can stimulate the economy.
As shareholder for Jersey Telecom, I can say we are now engaging with the Board to build a high speed, fibre optic, broadband network for the Island. This will meet the Island’s telecommunication needs and leap frog other jurisdictions in the process.
I believe there is a fantastic opportunity to secure ICT enterprises for Jersey which will create jobs in a new sector of the economy.Overall I believe we can be confident that our community has the finance, drive, energy and capacity to succeed.That is now matched by a commitment from the Council of Ministers to help.
Our income tax forecasts in the business plan have been reviewed and sustained
States Members will appreciate that this has been an exceptional year with only a matter of weeks between the 2012 Business Plan and this Budget.
The latest review of the Tax Forecasts suggests that no material changes are necessary.
Progress made in tax policy over the year
In last year’s Budget Statement I promised that we would develop new tax policy in a number of areas. I am pleased to report on significant progress.
Recent successes: zero-ten
First, the Tax Policy Unit is issuing today a report on the outcome of the Business Tax Review.It will come as no surprise that the consultation response was clear, that we should maintain Zero-ten. Whilst it has sometimes been difficult, I have maintained the consistent view that Zero-ten is absolutely fundamental to Jersey’s positive economic future.The States has approved legislative amendments which removed those elements of our tax legislation that were considered harmful by the Code Group.
On 13th September, the Code Group took the view that our rollback proposal would remove the harmfulness of our regime. The fact that we have secured Zero-ten is excellent news for Jersey. The advice that I have received from our professional staff and our own industry has been consistent, timely and insightful. I want to publicly thank my officer Team for their support and hard work.
I believe we had the right strategy from the start but without the skilful work of Senator Cohen, Assistant Chief Minister for External Relations, we would not have secured agreement with UK Ministers of the Island’s position.
I make no apology for repeating this. Securing the future of Zero-ten is fundamental and the right decision for Jersey. It brings certainty and stability to the business community and I expect this alone should boost confidence in the Island.
Recent successes: 1(1)(k)s
This year the Assembly has also approved a new 1(1)(k)tax regime for incoming high net worth individuals.This regime was designed to attract more people and their businesses to come to Jersey. Their spending particularly creates valuable economic growth and employment. This should also strengthen confidence in our Island’s future.
Taxation of non financial service companies
Now that we have clarity on Zero-ten I can bring forward a new mechanism to raise additional revenues from non-locally owned, non-finance companies trading in Jersey. I will address this subject in more detail in the Budget speech.
Specific budget measures for 2012
I now turn to the specific measures in the 2012 Budget.I committed last year to increase the revenues raised from International Service Entities.I propose in this budget to increase the fees paid by banks from £30,000 to £50,000.This should raise around £600,000.I have considered ways of raising revenues from very high earners.
Relief for pension contributions will be restricted for those earning over £150,000 per year. This should raise around £1.2 million. This will mean that “20 Means 20” really does apply to the highest earners.
I propose restricting tax free termination payments to £50,000 except in the case of death, injury and disability where the payments will remain fully exempt. This should raise in the region of £500,000.
Turning now to impôts. In previous years we have raised fuel duty. Sensitive to incomes being squeezed, I am pleased to propose that there will be no increase in fuel duty in 2012.
However, I do propose the following increases, which are around 5% on alcohol and 10% on cigarettes.
- 35 pence on packet of 20 cigarettes
- 50 pence on a litre of whiskey
- 6 pence on a bottle of wine
- 1 penny on a pint of beer but 2 pence on a pint of strong beer.
I consulted on changes to emissions duty and have accepted that further changes to VED would not assist new car sales. For this reason, I am proposing an increase of just 5% for all categories. This will only mean an extra £2 on the cost of a Ford Focus.
These increases are in line with the policies of my colleague, the Health Minister, and are supported by the Economic Development Minister.These modest increases in impôts and VED should raise around £2 million.
But now for the best news for Islanders. Conscious that families are feeling the pinch, this Budget provides substantial additional support to those families with young children. During the consultation on the FSR I identified that working parents were paying up to £16,000 a year for child care, whereas the tax relief was only on the first £6,150. I therefore propose to double the childcare relief from £6,150 per year to £12,000 per year for pre-school children.
This measure alone benefits families by up to £1,580 a year for every pre-school child and as an added bonus I propose that it will apply immediately to 2011 assessments. This helps middle income families the most. I believe this is the biggest targeted improvement in taxation for families with young children that has ever been proposed. The Council of Ministers needed no persuading on this. Families will benefit by around £1 million compared with last year.
This is a substantial benefit which not only helps families to meet the cost of child care but goes some way to helping the Island attract and retain essential workers such as nurses. In addition, after consulting the Education Minister, I am pleased to announce the extension of tax relief for child care to States’ run nurseries as well as private nurseries.
In the last few years we have done a great deal for those on Income Support. And now pensioner households can look forward to a secure future with the new long term care scheme next year. I am however conscious of the effects of the recession on middle income households. I therefore propose increasing exemption thresholds, not, this year, in line with average earnings at 2.5% but by the full rate of inflation at 4.5%. This is a £7 million benefit designed to help middle income households.
I will give you an example.
Take a married couple where both parents work and have a household income of £55,000, with 2 children, one of which is under the age of 3. Let’s say they pay £12,000 nursery fees and have a £275,000 mortgage. Their income tax liability will be £1,830 lower than this year. Over the past year there has been much debate about how best to target tax relief. Many proposals including GST food exemptions have been suggested. I understand the intention behind those proposals was to help families.The problem was complexity and administrative cost, that makes them inefficient.
This Budget measure is affordable, targeted, will leave more money in hard-working families’ pockets, maintains efficiency and creates no extra administrative cost. As I set out at the beginning of this statement, this is a Budget of consolidation, with no unpleasant prescriptions, giving to those who need it and preparing for and investing in our future.
Improving services to the public and making efficiences
Taxes Transformation Programme (TTP)
As well as having a clearly understood tax policy that sustains the Island’s economic competitiveness, we need to collect the taxes due as efficiently and fairly as we can.We will make it easier for taxpayers to file and pay their returns electronically.
The Taxes Office will make more use of its investigative and penalty powers so as to ensure that everyone pays the tax that is rightly due. Last year I asked the States to put more money into tax collection.We have invested wisely and I can confirm that our additional tax collectors have recovered a further £2 million. Our Transformation Project could achieve annual increases in tax revenues of up to £10m.
Furthermore, the Treasury is on track to deliver the CSR savings required by 2013. Simplifications of the Personal Tax system and self-assessment for Business and Personal Taxes will be achievable and will also save administrative costs. Greater use will be made of data sharing between Income Tax and Social Security and I signed a Ministerial Decision confirming this yesterday.
Jersey has effective working relationships with a growing number of jurisdictions
I would like to move now from the local tax regime to our international relationships. Jersey has a robust and respected regulatory framework for financial services.
Our officials have effective working relationships with a growing number of jurisdictions and as a result we now have 24 Tax Information Exchange Agreements in place.
The Comptroller handles all information requests promptly and helps build Jersey’s reputation as a safe place for depositing funds and for doing business.
We will continue to pursue reciprocal agreements with other responsible jurisdictions.
Earlier this week, I met with the Indian High Commissioner and I am pleased to announce that Senator Cohen or I will be signing the Indian TIEA in the very near future.
Future plans for the development of tax policy
I have described some important advances in tax policy with zero/ten and 1(1)(k)s but we plan to do more.
Our key tax policy priorities are:
Specific areas of focus over the next 2-3 years will include:
- considering the feasibility of moving to independent taxation and current year assessment for all individuals
- seeking to replace the 27% marginal rate of personal income tax with a simpler regime, which retains the low effective tax rates that all Jersey taxpayers enjoy
- reviewing opportunities to go further with ’20 means 20’ for those on the highest incomes, particularly those on over £150,000.
- reviewing tax practices that may be seen to be unfair, particularly in relation to property ownership and development.
- and carrying out a detailed review of Jersey's interest tax relief framework
Last year we committed to the difficult decisions needed to close the fiscal gap and return to balanced budgets by 2013. This year, we are able to enjoy some of the benefits of those measures, and put money back in the pockets of Islanders and their families.
We will still need to commit to savings, seek further efficiencies, and develop opportunities for growth. I know the majority of islanders have been affected by this down turn. Many have experienced hardship that we’ve not seen for a generation. All around us we are witnessing much larger jurisdictions with severe fiscal difficulties. We made some tough decisions last year, we’re going to benefit from them next year.
As a result, we can once again all look forward to a more certain, positive and prosperous future.